Benchmarking offers more than you thought – what exactly?

Transfer pricing – your basic use of a benchmarking analysis

Benchmarking analysis is a tool to verify whether the terms set in transactions between related parties correspond to the arm’s length principle. It allows examining whether the conditions in a transaction between related entities correspond to those that third parties have set or would set. If an obligation to prepare transfer pricing documentation is identified for a given transaction, then – with few exceptions – the benchmarking analysis is one of its mandatory elements (as a comparative or compliance analysis).

Although not so obvious, benchmarking analysis can be used for a wider range of purposes than simply meeting documentation obligations for controlled transactions.

Other areas for the application of benchmarking analysis

A benchmarking analysis is the most important element in defending the arm’s length nature of a transaction during a possible audit. However, it will only do the job if it is high quality: in terms of the preparation process as well as the reliability and credibility of data. Benchmarking is therefore often the most expensive part of transfer pricing documentation.

Although the analysis can be used for 3 years if there are no significant changes in the conditions of the transaction and the economic environment, sometimes clients ask whether it can still be used for something else. The answer is yes. For example, our qualitative analyses can be used in these areas:

1. WHT opinions

It may be a part of the documentation for obtaining a WHT preference opinion. It is meant to confirm the applicability of the exemption from withholding tax under special provisions, but also the non-collection of tax or collection at a lower rate under the relevant double taxation treaty (e.g. in the case of interest on loans or trademark license fees).

2. SEZ

In the case of new investments in Polish Investment Zone carried out on the basis of decision on support, as well as entities settling CIT exemption in connection with conducting business in special economic zones on the basis of a permit – it can be used to determine what income to assign to exempt activities and taxable activities, if there are transfers between them.

3. Estonian CIT

Entities opting for the so-called Estonian CIT (lump sum on corporate income) may use it as a support to verify whether the condition of occurrence of ‘added value higher than insignificant’ is met for transactions with related parties.

4. IP Box

In the case of generating revenues from qualified intellectual property rights included in the sale price of a product or service – it can be used to determination of the amount of income subject to taxation at the rate of 5% CIT.

5. Structuring of financing

When creating special purpose vehicles (SPV) for projects and structuring its settlements with the holding company and the general contractor – in order to adapt the settlements to the tax law while complying with agreements with the bank and the general contractor.

6. PE

To allocate income to a foreign permanent establishment for the purposes of transfer pricing regulations.

7. Business justification / project evaluation

As part of a business plan (e.g. to obtain financing from banks) or an economic justification for processes (e.g. in the case of restructuring).

8. Transactions with unrelated entities

As support for determining the amount of mark-up or margin in the case of transactions with unrelated entities.

Access to databases enhances capabilities

The examples show other areas where benchmarking analyses can be used. Importantly, we are talking here about exactly the same analyses that are part of transfer pricing documentation – they have been prepared according to strictly defined rules set forth in transfer pricing regulations (e.g. based solely on a sample of third parties). And yet, having free access to Polish and international databases, you can freely expand and adapt these analyses for purposes other than transfer pricing. This is how you can further increase their functionality (e.g. by expanding the sample to include entities operating within capital groups).

A major advantage is that the financial data from the databases are unified, so you can compare the results of companies from the same country or operating in different markets. Here the range of applications for such analyses is unlimited, for instance:

  • monitoring entities with which businesses cooperate at various stages of the supply chain and their financial condition: suppliers, sub-suppliers, subcontractors, customers, including verifying the reliability of business partners, or preparing a list of potential contractors for cooperation,
  • verifying the profitability of a given activity or investment, including identification of new markets, products or distribution methods, or areas where established prices are too high or too low,
  • cost control compared to the market, i.e. identifying areas where efficiency can be improved,
  • or even assessing the financial condition and profitability of competitors.


If you already have a benchmarking analysis prepared for transfer pricing documentation, you could approach your advisors about what other areas of tax it can be used in. You can be positively surprised, because the benchmark is a truly multifunctional tool.


Manager, Transfer Pricing Team

Tel.: +48 797 603 696